7.30 pm

Given the surprise felt by the industry, we need an explanation from the Treasury on when it chooses to consult and when it does not. When debating the timing of the Finance Bill and the business motion relating to it, the Leader of the House said:

"I think that two full days in total to consider the remaining stages is perfectly adequate provision. It is adequate partly because this Finance Bill has already been through more consultation with industry, outside bodies and financial services than any previous one. Many of the clauses were seen in draft form by the industry, which may partly explain why the Opposition ran out of things to say in Committee."[Official Report, 24 June 2002; Vol. 387, c. 710.]

The oil and gas clauses were not seen by the industry before the Finance Bill was published. It might be helpful if the Financial Secretary would outline the Treasury's thinking in consulting some sectors and industries prior to the Budget to allow them to understand the measures. Why were there no draft clauses on which the oil and gas industry could consult? Will she put in the Library what percentage of the Finance Bill honoured what the Leader of the House told us only the Monday before last?

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When it comes to sending strange signals and conflicting messages, the industry is entitled to argue that PILOT psychologically sent a message that this was its way of engaging with Government and that it was engaging with the whole of Government, not just a part. The Government pride themselves on encouraging joined-up government, but the signals from PILOT were about the need to obtain investment and deal with fallow fields. There was a response, and the PILOT objectives were being met, so the shock felt is quite understandable. That is reinforced by what the Secretary of State for Scotland said in Scottish questions on 11 June in answer to a question from the hon. Member for Banff and Buchan (Mr. Salmond):

"As part of that review, the Treasury was represented on the oil and gas industry taskforce and on Pilot, which I chaired for about two years, by no less a figure than Sir Steve Robson. At that time, very few Treasury officials were ranked higher than him. It was the discussions within Pilot that led us to reach a decision on the North sea fiscal regime that is designed to help companies which are investing in the North sea."[Official Report, 11 June 2002; Vol. 386, c. 707.]

If the Secretary of State for Scotland was under the impression that PILOT and the Treasury were closely linked and that there was a link between what PILOT was up to and the fiscal regime, it is little wonder that the industry thought that messages were coming from that engagement.

Previous speakers have alluded to what was said last year about the tax regime and the messages sent out in the north-east of Scotland. The Press & Journalthe voice of the northserves the north-east of Scotland. It serves Aberdeen, the capital of the oil industry for Europe. The paper wrote in its editorial about the Prime Minister's visit to Aberdeen in May 2001, in the run-up to the election. It said that the Prime Minister made it clear in his speech in Aberdeen, South that there were

"no plans for a windfall tax on the oil companies, and accepted the offshore industry's need for a stable tax regime.

He said:

"We have been strongly supportive of the oil industry and oil production and I'm well aware of the fact it is of crucial importance to Aberdeen."

The Press & Journal said in its editorial:

"His insistence that there will be no windfall tax on North Sea oil operators is a major relief not just to the multinationals, but to all whose prosperity and services depend on a healthy oil trade."

If, just before the general election, the Prime Minister promises that there will be no windfall tax, and then within the year the Chancellor introduces a new tax regime that is even worse than a windfall tax because it is for ever, regardless of the price of oil, what kind of industrial policy are the Government pursuing? What is their long-term fiscal strategy for encouraging inward investment and a thriving investment potential for this economy?

It was the Government's declared aim to lay to rest the fears that a new Labour Government would damage industry, but if every sector suddenly finds that the rug is pulled out from under it, and that promises are made just before elections and reneged on within the year, that does not create an investment climate that is conducive to long-term fiscal stability.

Mr. Salmond:
Let us dwell on that point for a moment. If we assume that the Prime Minister was telling the truth

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before the election last year, that would destroy the Treasury argument that this was part of a continuous process from 1997, culminating in this tax change. Or we could conclude that the Prime Minister was not telling the truth, but even Treasury Ministers would not want to go down that road, would they?

Sir Robert Smith:
It would be extremely helpful if the Treasury could clarify the Secretary of State's view of PILOT and the Prime Minister's comments in the run-up to the election. Or was the right hon. Gentleman's speech simply a message designed to be heard in the north of Scotland where votes were important so that Labour Members could be re-elected in marginal seats? That is not the way to deliver a stable, long-term economic environment, but it is a dangerous way to mislead people. Once people feel misled, the damage must be undone, which is, I hope, what the Treasury is looking to do. However, its response so far to the debate seems to be to put pressure on the industry. The Treasury seems to be saying that if the industry complains, it will drag its heels on the other half of the package.

If this proposal was thought out on day one and abolishing royalties comprised part of the package, why on earth has the consultation not started? Why on earth is there no consultation paper on the abolition of royalties? It was something that the Chancellor promised, to dress up the presentation of the Budget, yet we still hear nothing about it.

The most frightening thing about the Treasury's lack of understanding is how it thinks that someone can make investment decisions about a field that is subject to royalty tax when he does not know what is happening to royalties. It beggars belief that the Treasury believes that it can sit on this measure without it doing any damage. Every day is a delay when a decision needs to be made. The longer the wait, the worse the situation becomes as people find other places to make their financial investments.

Amendments Nos. 42, 43 and 44, tabled by the hon. Member for Banff and Buchan, provide a chance to undo the damage completely. It would be impressive if, when those votes take place tomorrow, the House could reject this part of the Finance Bill. We could go back to square one, have a proper consultation with the industry, with proper draft clauses, as the Leader of the House thought that the Government were doing with other sectors of industry. In that way, we could have a long-term, stable, clearly thought-out policy for the future of oil and gas.

This does not matter so much at the very top. The middle and senior managers whose job it is to manage an asset in the North sea are the ones who have been betrayed. They have been telling their bosses in France or America that they are a good bet, they have a good climate, a taskforce and PILOT. They have been saying that they have engaged with each other, that a logical way of working has been established, that they have tried to get the industry to work together, that they have learned a lot of lessons and that much good has come out of 1997. As the hon. Member for Banff and Buchan said, only a year ago many of us were praising the Government for what they had done. The middle and senior managers feel betrayed because their bosses in France, America or elsewhere in the UK are saying, "You got the money out of us under false pretences. You said that there was no fiscal risk and that the bet was long term. We backed your judgment and you have let us down because you have not

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delivered." That delivery is the Government's failureit has sent the wrong signals. In fact, those people probably regret ever becoming involved in PILOT and changing the culture of the industry. It would have been better if they had remained isolated and carried on as before because they would not have exposed themselves.

It will be a sad outcome if the Treasury does not find a way of engaging in the debate on financing costs, royalties and long-term stability. PILOT requires the commitment of individuals and industry money to make it work. It is quite difficult to motivate people after such a bad hit. Anything the Financial Secretary can do to smooth the waters and rebuild confidence will be most welcome, but she must realise that there has been a genuine shock. The new clauses provide a chance for the Government to show that they are listening and willing to address that shock. They provide an opportunity for the Government to address the point about financing costs, which has been raised on both sides of the House.

The Treasury must look at the smaller companies who look to lease assets to exploit smaller fields and ensure that the tax system is not a straight hit on those companies, with no compensation to encourage them to maintain their projects. We have real potential in terms of the technology of floating production, which is an exportable technology. If we can develop that expertise, nurture it and maintain it, we can take it elsewhere.

There has been talk about major companies walking away. However, the crucial thing about major companies being here as long as possible is that they often own the central asset to which many small fields are tied back, and the tax regime and Government stability must maintain those central core assets if we are to maximise the exploitation of the North sea. I urge the House to back the amendments and new clauses tabled in the names of Conservative and Liberal Democrat Members, which address what is a tax too far.